Exhibit 10.19


 


[    ] = Confidential Treatment Requested Under
17 C.F.R. §§ 200.80(b)(4) and 240.24b-2; Text Omitted and Filed
Separately with the Securities and Exchange Commission


 


THIRD AMENDMENT TO
RESEARCH COLLABORATION

AND LICENSE AGREEMENT DATED MAY 31, 1991


 


This Third Amendment
dated this 3rd day of November, 1997 between Merck & Co., Inc. (“Merck”)
and Vical Incorporated (“Vical”).


 


WHEREAS on May 31, 1991
Merck and Vical entered into a Research Collaboration and License Agreement, as
amended on April 27, 1994 and December 13, 1995 (the “Agreement”) under
which Merck obtained an exclusive license under VICAL PATENT RIGHTS and VICAL
KNOW-HOW to develop, make, have made, use and sell LICENSED PRODUCTS in the
TERRITORY (all as defined therein) upon the terms and conditions set forth
therein; and


 


WHEREAS the parties wish
to further amend the Agreement to provide that Merck shall have rights to
vaccine products for the treatment of patients infected with Human
Immunodeficiency Virus and Hepatitis B Virus upon the terms and conditions
of the Agreement as amended hereby;


 


NOW, THEREFORE, in
consideration of the premises and covenants set forth herein, the parties
hereto agree as follows:


 


1.             This Third Amendment
shall be effective as of the date set forth above.


 


2.             Article 1.3 of the
Agreement is amended by adding at the end thereof the following sentence:


 


“LICENSED PRODUCT
shall also mean TREATMENT VACCINE(S).”


 


3.             The Agreement is
amended by adding to Article 1 a new section as follows:


 


1

















 


1.14         TREATMENT
VACCINE(S) shall mean a bulk or finished vaccine for the treatment of (i) Human
Immunodeficiency Virus (HIV-1) and/or diseases caused by infection with HIV-1
in humans and (ii) Hepatitis B Virus (“HBV”) and/or diseases caused by
infection with HBV in humans, which utilizes the Technology or technology which
is developed by VICAL during and as a result of the RESEARCH COLLABORATION
PROGRAM.


 


4.             The Agreement is
amended by adding Article 8.3(g) as follows:


 


8.3(g)          Merck shall make the non-refundable research
milestone payments provided for in Schedule E to the Third Amendment for
the first TREATMENT VACCINE for HIV-1 and/or diseases caused by infection with
HIV-1 in humans and the first TREATMENT VACCINE for HBV and/or diseases caused
by infection with HBV in humans.


 


5.             Article 8.4 is hereby
amended to be replaced in its entirely as follows:


 


8.4(a)          Except as set forth in Article 8.4(b) with
respect to royalties for TREATMENT VACCINE(S), in consideration of the license
granted in Article 3, MERCK shall pay royalties to VICAL in each calendar
year in the amount of [...***...] of
NET SALES by MERCK, its AFFILIATES or permitted sublicensees of each LICENSED
PRODUCT which is covered by VALID PATENT RIGHTS.


 


8.4(b)          In consideration of the license granted in
Article 3 for TREATMENT VACCINE(S), royalties shall be payable to VICAL in each
calendar year as follows:


 


8.4(b)(i)      for sales outside the United States, its
territories and possessions by MERCK, its AFFILIATES or permitted sublicensees
for each TREATMENT VACCINE:


 


[    ] =
Confidential Treatment Requested; Text Filed Separately with the Securities and
Exchange Commission


 


2

















 


(A)              the
sale of which is covered by VALID PATENT RIGHTS in the country of sale, for the
term of the relevant VALID PATENT RIGHTS in the following amounts:


 


For annual NET SALES less than or equal


	
  to [...***...]

  	
   

  	
  [...***...]
  of NET SALES

  



 


For annual NET SALES greater than [...***...],       [...***...] of NET SALES for that portion of
NET SALES greater than [...***...]


 


(B)               the
sale of which is not covered by VALID PATENT RIGHTS in the country of sale, in
the amount of [...***...] of NET SALES
for a period of five (5) years from the date of first commercial sale in such
country.  MERCK shall pay royalties to
VICAL pursuant to this section 8.4(b)(i)(B) and such royalties shall be in
lieu of patent royalties and shall not be additive where patents later issue in
a country.


 


8.4(b)(ii)     For sales in the United States, its territories
and possessions, whether or not covered by a claim of VALID PATENT RIGHTS:


 


For annual NET SALES less than or equal


	
  to [...***...]

  	
   

  	
  [...***...]

  
	
   

  	
   

  	
   

  
	
  For annual NET SALES greater than [...***...]
  and

  	
   

  	
   

  
	
  less than or equal to [...***...],
  for that portion

  	
   

  	
  [...***...]

  
	
  of NET SALES greater than [...***...]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  For annual NET SALES greater than [...***...]
  or

  	
   

  	
   

  
	
  equal to [...***...], for
  that portion of

  	
   

  	
  [...***...]

  
	
  NET SALES greater than [...***...]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  For annual NET SALES greater than [...***...],

  	
   

  	
  [...***...]

  
	
  for that portion of NET SALES greater than [...***...]

  	
   

  	
   

  



 


(A)              In
the event the sale of TREATMENT VACCINE is covered by VALID PATENT RIGHTS in
the country of sale, the royalty set forth in 8.4(b)(ii) shall be payable for
the life of such VALID PATENT RIGHTS.


 


[    ] = Confidential Treatment Requested; Text Filed Separately
with the Securities and Exchange Commission


 


3

















 


(B)               In
the event the sale of TREATMENT VACCINE are not covered by VALID PATENT RIGHTS
in the country of sale, royalties shall begin on the date of first commercial
sale and shall be payable for a period of five (5) years from first commercial
sale.  The royalties payable under this
section shall be in lieu of patent royalties and shall not be additive where
patents later issue in a country.


 


8.4(c)          For purposes of calculating royalties due to
Vical under Articles 8.4(b)(i)(A) and 8.4(b)(ii), the sales level tiers
set forth therein will be adjusted cumulatively, using the U.S. Pharmaceutical
Price Index for sales in the U.S., its territories and possessions and the
corresponding European index for sales outside the U.S.  Said adjustments will be made based on the
change in each such Index from the effective date of this Third Amendment as compared
to the dates of the first commercial Ex-U.S. and U.S. sales, respectively, of
each TREATMENT VACCINE.  Thereafter, the
sales level tiers will be adjusted as of each anniversary date of such first
commercial sale, based on the change in the weighted average selling price of
each TREATMENT VACCINE for, respectively, U.S. and Ex-U.S. sales, based on a
comparison of the two prior years weighted average selling price.  It is understood that for the first
anniversary, the weighted average selling price at launch will be compared to
the weighted average selling price over the first year, in each case.


 


6.             Article 8.5 is
amended by adding the following at the beginning thereof:


 


“Other than for TREATMENT VACCINE(S),. . .”


 


7.             Article 8.8 is hereby
amended to be replaced in its entirety as follows:


 


4

















 


8.8(a)          Except for royalties for TREATMENT VACCDE(S),
which is addressed in Article 8.8(b), if MERCK is required to pay cumulative
royalties in excess of [...***...] of
Net Sales for additional licenses required to commercialize a particular
LICENSED PRODUCT, the royalties payable to VICAL herewith with respect to such
LICENSED PRODUCT shall be reduced by [...***...]
of the additional royalties beyond such [...***...]
figure; provided however, that in no event shall the royalties due VICAL
hereunder, after taking into account the above reduction, be reduced below [...***...].


 


8.8(b)          If MERCK is required to pay cumulative
royalties in excess of [...***...] for
licenses required to commercialize a particular TREATMENT VACCINE (including
the royalties set forth under this Agreement), the royalties payable to VICAL
with respect to such TREATMENT VACCINE shall be reduced by [...***...] of the royalties beyond such [...***...] figure; provided, however, that in
no event shall the royalties due VICAL with respect to any country, after
taking into account the above reduction, be reduced by more than [...***...]. 
Unused royalty credits may be carried into subsequent royalty periods.


 


8.             The Agreement is
amended by adding Articles 8.10, 8.11 and 8.12 thereto as follows:


 


8.10             Within
thirty (30) days of the date of this Third Amendment, Merck will purchase duly
issued and validly authorized unregistered shares of VICAL common stock having
an aggregate purchase price of $5,000,000 (five million dollars) on the terns
and subject to the conditions of the Stock Purchase


 


[    ] = Confidential Treatment Requested; Text Filed Separately
with the Securities and Exchange Commission


 


5

















 


Agreement dated of even date herewith, between VICAL and MERCK, at a
price per share equal to the greater of $16.00 per share or 125% of the average
of VICAL’s per share closing price for the twenty (20) trading days prior to,
but not including, the Effective Date of the Third Amendment.


 


8.11             VICAL
is hereby granted an option (the “OPTION) to co-promote TREATMENT VACCINE(S) in
the United States to a select target audience that will be agreed upon by the
parties.  With respect to each TREATMENT
VACCINE, the OPTION will be exercisable by VICAL at any time prior to MERCK’s
completion of Phase III clinical trials for such TREATMENT VACCINE.  Prior to exercising its OPTION with respect
to a TREATMENT VACCINE, VICAL will establish, to MERCK’s reasonable
satisfaction, that at the estimated time of the first PLA filing in the United
States for such TREATMENT VACCINE, VICAL will have a sales force of at least [...***...] professional representatives who
will be available to make at least 6 detail calls per day on at least 200 days
per year with respect to such TREATMENT VACCINE.  The parties will enter into a co-promotion agreement for such
co-promotion by VICAL within six (6) months of the exercise of the OPTION.  The co-promotion agreement will contain
reasonable terms and conditions, consistent with industry standards and the
terms of this Agreement.  The
co-promotion agreement will contain the financial terms set forth on
Schedule F of this Third Amendment.


 


8.12             In
the event a TREATMENT VACCINE is also capable of being used for the prevention
of the same human infectious disease, in its sole discretion VICAL


 


[    ] = Confidential Treatment Requested; Text Filed Separately
with the Securities and Exchange Commission


 


6

















 


may choose to have royalty payments made under Article 8.4(a) and
Article 8.5 or, alternatively, under Articles 8.4(b) and 8.11
(co-promotion option).


 


9.             The effectiveness of
this Third Amendment is subject to the execution and delivery of the Stock
Purchase Agreement dated as of even date herewith, between VICAL and MERCK and
payment by MERCK of the $5,000,000 (five million dollars) thereunder.


 


10.           Except as amended
hereby, all other terms and conditions of the Agreement shall remain unchanged
and shall continue in full force and effect. 
Capitalized terms in this Third Amendment shall have the meaning set
forth in the Agreement.


 


IN WITNESS WHEREOF, the
parties hereto have had this Third Amendment executed by their authorized
representatives as set forth below.


 


	
  MERCK & CO.,
  INC.

  	
  VICAL
  INCORPORATED

  
	
   

  
	
   

  
	
  BY:

  	
  /s/ Raymond Gilmartin

  	
   

  	
  BY:

  	
  /s/ Alain B.
  Schreiber, M.D.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TITLE:

  	
  Chairman,
  President and

  Chief Executive Officer

  	
   

  	
  TITLE:

  	
  Alain B.
  Schreiber, M.D.

  President & C.E.O.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DATE:

  	
  November 3, 1997

  	
   

  	
  DATE:

  	
  October 27, 1997

  	
   

  
										



 


7

















 


SCHEDULE E -
MILESTONES FOR TREATMENT PRODUCTS


 


	
  [...***...]*

  	
   

  	
  $

  	
  1.0M

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  [...***...]*

  	
   

  	
  $

  	
  1.5M

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  [...***...]

  	
   

  	
  [...***...]

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  [...***...]

  	
   

  	
  [...***...]

  	
   

  



 












*If the milestone
is paid on the identified date, it will be paid only once and credited against
the milestone due when the event is achieved.


 


“Major Market
Country” shall mean the United States, EC countries, Canada, or Japan.


 


[    ] = Confidential Treatment Requested; Text Filed Separately
with the Securities and Exchange Commission


 


8

















 


SCHEDULE F –
CO-PROMOTION FINANCIAL TERMS


 


1.             All
sales made by VICAL under the Co-Promotion Agreement will be booked by Merck.


 


2.             VICAL
will, in addition to the royalties set forth in Article 8.4(b), receive
the following amounts in consideration for its Co-Promotion efforts:


 


A.            If VICAL
provides between [...***...] and [...***...] sales representatives for the
co-promotion VICAL will receive the following royalty increment on U.S. NET SALES:


 


	
  For annual U.S. NET SALES less than [...***...]

  	
   

  	
  [...***...]

  
	
   

  	
   

  	
   

  
	
  For annual U.S. NET SALES equal to or greater than [...***...] and less than or equal to [...***...] for that portion of U.S. NET
  SALES equal to or greater than [...***...]

  	
   

  	
  [...***...]

  
	
   

  	
   

  	
   

  
	
  For annual U.S. NET SALES greater than [...***...] for that portion of U.S. NET SALES greater than [...***...]

  	
   

  	
  [...***...]

  



 


B.            If VICAL
provides 50 or more sales representatives for the co-promotion, VICAL will
receive the following royalty increment on U.S. NET SALES:


 


	
  For annual U.S. NET SALES less than [...***...]

  	
   

  	
  [...***...]

  
	
   

  	
   

  	
   

  
	
  For annual U.S. NET SALES equal to or greater than [...***...] and less than or equal to [...***...] for that portion of U.S. NET
  SALES equal to or greater than [...***...]

  	
   

  	
  [...***...]

  
	
   

  	
   

  	
   

  
	
  For annual U.S. NET SALES greater than [...***...] for that portion of U.S. NET SALES greater than [...***...]

  	
   

  	
  [...***...]

  



 


3.             It is
understood that with respect to each TREATMENT VACCINE, the size of VICAL’s
sales force for such TREATMENT VACCINE on the date that VICAL exercises its
option will determine permanently the level of incremental royalty that VICAL
will receive on U.S. sales of such TREATMENT VACCINE, notwithstanding that
VICAL may subsequently increase the size of such sales force.


 


4.             It is
understood that all costs related to the VICAL sales force, including training,
will be for the account of VICAL.


 


5.             For
purposes of calculating the royalty increment described in Paragraph 2,
above, the Sales level tiers set forth therein will be adjusted cumulatively,
using the U.S. Pharmaceutical Price Index. 
Said adjustments will be made based on the change in such Index from the
effective date of this Third Amendment as compared to the date of the First
Commercial sale of each TREATMENT VACCINE in the U.S.  Thereafter, the


 


[    ] = Confidential Treatment Requested; Text Filed Separately
with the Securities and Exchange Commission


 


9

















 


sales level tiers will be adjusted as of each anniversary date of such
first commercial sale based on the change in the weighted average selling price
of each TREATMENT VACCINE, based on a comparison of the two prior years
weighted average selling price.  It is
understood that for the first anniversary, the weighted average selling price
at launch will be compared to the weighted average selling price over the first
year in each case.


 


10